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Casey's (CASY) Down 0.5% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Casey's General Stores (CASY - Free Report) . Shares have lost about 0.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Casey's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Casey's Q1 Earnings Beat Estimates, Sales Up Y/Y

Casey's General Stores, Inc. broke its three-quarter long trend of negative earnings surprise streak, when it reported first-quarter fiscal 2019 results. The top line also beat the consensus mark in the reported quarter. Notably, sales and earnings improved year over year.

Further, the company is on track with its Value Creation Plan and provided updates on the same. This combined with fleet card program and efforts to strengthen store base have been yielding.

A Closer Look at Q1 Results

The company reported quarterly earnings of $1.90 per share that surpassed the Zacks Consensus Estimate of $1.68 cents and improved 30.1% year over year. Several strategic initiatives fueled bottom-line performance in the reported quarter, including recent investments in stores, strategic pricing, enhanced labor hours, share repurchases and favorable impacts from tax reforms.

Total revenues of $2,588 million surged close to 24% and also surpassed the consensus mark of $2,550 million. The top line benefitted from improved revenues across the company’s segments.  

Gross profit during the quarter came in at $521.8 million, rising almost 9.5% year on year. However, gross margin contracted 260 basis points (bps) to 20.2%.

Further, during the quarter Casey's witnessed higher cost of goods sold (up 27.8%) and operating expenses (up 11.9%). Operating expenses expanded primarily due to increase of 105 stores in the reported quarter compared with the prior-year quarter’s tally. Additionally, higher credit card fees, fleet fuel costs and health care expenses increased operating expenses burden. These were somewhat offset by gains from changes made in pizza delivery and reduced working hours at stores. Moreover, the company continues to expect operating expenses to increase in the range of 8.5-10.5% during fiscal 2019.

Performance by Categories

We note that Fuel sales increased 34.9% to $1,647.4 million. Fuel gallons same-store sales increased 0.5% compared with 1.7% growth witnessed in the year-ago quarter. Fuel margin of 20.5 cents per gallon, increased 6.2% year over year and was mainly driven by effective retail fuel pricing.

Management continues to envision fiscal 2019 fuel gallons same-store sales in the band of 1.5-3% and fuel margin in the range of 18.5-20.5 cents per gallon.
 
Grocery and Other Merchandise sales rose 7.9% to $644.8 million, while same-store sales rose 3.2% compared with 3.1% growth registered in the prior-year quarter. Grocery and other merchandise margin improved 50 bps to 32.4%. The segment’s performance in the quarter benefitted from higher margin and fast-growing lines such as packaged beverages.

Further, management is committed toward efficiently managing the segment’s promotional activities to drive profit. Casey's forecasts grocery and other merchandise same-store sales in the band of 1.5-3% with margin expected between 31.5% and 32.5% for fiscal 2019.

Prepared Food and Fountain sales jumped 7.3% to $281 million, while same-store sales increased 1.7% compared with 3.7% growth recorded in the year-ago quarter. During the quarter, the segment gained from strong performance in breakfast daypart, which helped offsetting softness in bakery category. Further, Prepared Food and Fountain margin contracted 50 basis points to of 62% on account of increased input costs and promotional activity.

Management projects prepared food and fountain same-store sales in the band of 1.5-3.5% with margin expected between 60% and 62% for fiscal 2019.

Store Update

During first-quarter fiscal 2019, the company constructed 15 new stores and acquired one. Further, the company closed four stores. As of July 31, 2018, the company operated 2,085 stores. In fiscal 2019, the company plans to construct 60 stores and acquire more than 20 outlets.

Other Financial Aspects

Casey's ended the quarter with cash and cash equivalents of $44.8 million, long-term debt (excluding current portion) of $1,291.7 million and shareholders’ equity of $1,298.7 million. During the quarter, the company generated cash flow from operations of $149.2 million and incurred capital expenditures of $98.3 million. The company plans to incur capital expenditures of $466 million during fiscal 2019.

During the first quarter, the company completed the initial $300 million share repurchase program, which was approved in March 2017. Also, in March 2018, the board of directors announced a new $300-million share buyback program. There were no repurchases made under this new authorization during the first quarter.

Moving on, the company declared quarterly dividend of 29 cents a share, payable on Nov 15, 2018, to shareholders in record as on Nov 1, 2018.

Updates on Value Creation Plan

Casey's is on track with product optimization efforts, under the fuel program. Also, the company plans to initiate fuel price optimization pilot program in the second quarter. Additionally, it has finalized contracts for fuel and inside price optimization.  

Further, the company has finalized a marketing plan with its fleet card vendor, which is set to be launched in the second quarter. Moreover, it has agreed upon several contracts under e-commerce and customer-facing categories.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Casey's has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Casey's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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